US DOE to make monthly solicitations to refill the SPR through at least May

The US Department of Energy is ramping up efforts to refill the Strategic Petroleum Reserve by posting monthly solicitations for oil for the next six months and by increasing the maximum price it will pay to $79/b.

The department had previously said it would look to refill the SPR when WTI crude oil was at or below $67-$72/b, but the new price is still below current prices.

NYMEX November WTI settled 62 cents lower at $88.75/b and ICE December Brent fell 22 cents to settle at $92.16/b.

Beginning with a solicitation for up to 6 million barrels of oil for delivery in December and January, DOE's Office of Petroleum Reserve will post monthly solicitations to purchase oil for the SPR through at least May 2024, DOE said Oct. 19.

The price threshold of $79/b is far less than the average $95/b DOE received for 2022 emergency SPR sales, DOE said "Analysis from the Department of Treasury indicates that SPR releases last year, along with coordinated releases from international partners, reduced gasoline prices by as much as 40 cents/gallon," the statement said.

DOE has already bought 4.8 million barrels of oil to replenish the SPR for an average of less than $73/b, the statement said. Bids for the first solicitation for the purchase of up to 3 million barrels of crude oil, for December receipt, are due no later than 10 am Central time Oct. 24, DOE said.

"By providing transparency in the cadence of solicitations, qualified bidders can more easily submit comprehensive and competitive bids that deliver a good deal for taxpayers," the statement said.

The DOE last year completed the largest-ever drawdown from the SPR, selling 180 million barrels of oil over several months to combat energy price hikes spurred by Russia's invasion of Ukraine. The department has committed to buying back oil at a lower price to make a return for taxpayers.

Criticism of SPR management

Considering the fact that DOE's price threshold is below current crude prices, some see the announcement as an effort to respond to criticism about the SPR drawdown.

"Amid ongoing conflict in the Middle East, GOP lawmakers have redoubled their criticism of the Biden Administration's limited replenishment from last year's sales," ClearView Energy Partners said in an Oct. 19 note. "Even if the DOE does not acquire additional barrels at current prices, the White House may see the solicitations as offering some degree of political cover."

Height Capital Markets senior policy analyst Benjamin Salisbury said he sees the announcement "primarily as a messaging exercise to producers both in the US and Saudi Arabia, who have been frustrated by the administration's aggressiveness in drawing down the stockpiles and deliberateness in refilling them," according to an Oct. 20 commentary.

If it is successful, the announcement could use some of the seasonality in oil prices to add to the buffer before the 2024 driving season, Salisbury said.